A Big Mac costs $4.00 in Canada and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar, purchasing power parity predicts that

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Purchasing power parity (PPP) suggests that in the long run, exchange rates should adjust so that identical goods in different countries have the same price when expressed in a common currency. In this case, a Big Mac costs $4.00 in Canada and 9.00 reals in Brazil. Given the exchange rate of 2 reals per dollar, the Big Mac in Brazil costs 9 / 2 = $4.50 when converted to dollars, which is more expensive than in Canada. This discrepancy suggests that the real is overvalued or the dollar is undervalued. To correct this, the value of the dollar should appreciate. This appreciation can occur as the supply of dollars falls in the long run, because as dollars become more valuable, fewer are needed to purchase the same amount of goods, leading to a decrease in the supply of dollars in the foreign exchange market.

A Big Mac Costs $4